| The Business Electric: Follow the Bouncing Energy Tax Breaks | ||||
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The Jobs Act, formally known as H.R. 4520, was introduced to repeal provisions of the Foreign Sales Corporation/Extraterritorial Income Act (FSC/ETI) that ran afoul of international trade agreements. With the blessing of the World Trade Organization, members of the European Union have been imposing harsh tariffs against hundreds of products exported by U.S. companies until American lawmakers repeal the original FSC/ETI law.
But FSC/ETI has become the latest playground for Washington lobbyists, much to the chagrin of people who monitor the federal lawmaking machine. As passed, the bill now features pages upon pages of special deals, including lower corporate tax rates and excise-tax relief for products ranging from fishing tackle boxes to bows and arrows. It also includes $9.6 billion in direct payments to get farmers to stop growing tobacco.
“If you’re a lobbyist and you haven’t gotten something in this bill, you should be fired,” said an exasperated Aileen Roder of the group, Taxpayers for Common Sense Action. The bill was meant to correct a serious international trade crisis, she said. “Instead of simply fixing that, we kitchen-sinked the whole thing. This is one of the worst instances of political logrolling we’ve ever seen.”
Even after counting “offsetting” provisions for its multiple tax-relief provisions, the bill is expected to incur $34 billion in tax revenue losses over ten years, said Keith Ashdown, vice president of policy for the Taxpayer’s group.
The Senate counterpart of FSC/ETI repeal, called the “Jumpstart our Business Strength Act” (S. 1637), was just as bad. Passed by the Senate in May, Jumpstart added virtually all of the energy-tax provisions that had originally been included in the Senate’s moribund comprehensive energy bill. Potomac observers estimate the value of these provisions at somewhere between $13 billion and $20 billion – covering everything from production credits for renewable power generators and oil drillers to direct subsidies for the owners of hybrid gas/electric automobiles. Also included were a host of tax breaks for energy-efficiency efforts, such as direct incentives for housing builders and homeowners, plus tax cuts for commercial enterprises based on the square footage of buildings upgraded to higher efficiency standards.
Those Senate energy-tax provisions are not found in the House version of the bill, and they bring the total package value to at least $167 billion.
Tax “relief” of this sort – whether for energy or any other domestic activities – is certainly a mixed blessing.
On one hand, it’s the easiest way for Congress to enact policy that is otherwise difficult to pass. The comprehensive energy bill is a prime example, although you can certainly argue that the main reason for its failure last year was that it collapsed from the weight of its own generosity.
Long frustrated that energy-efficiency incentives have been “held hostage” to aspects of the larger energy plan that it considers much less desirable, the Alliance to Save Energy, for instance, hailed the Senate’s version of FSC/ETI repeal.
“These tax breaks not only will save consumers money, curb air pollution and reduce our nation’s foreign oil dependence,” claimed Alliance president Kateri Callahan, they also “will spur market demand for more energy-efficient products, from vehicles to homes and appliances.”
On the other hand, tax credits and incentives are underwritten by spending less on other things or, more likely in this climate, by deepening the federal budget deficit. The transfers of wealth are too complicated to map out, but eventually taxpayers end up footing the bills. Many people might argue that the effectiveness of tax-based incentives to actually accomplish policy is suspect, but tax cuts in any form are always welcomed during an election year.
The backdoor nature of policymaking by tax reform makes an already complex system even more complicated. “The tax system should be designed to impose and collect taxes, not to administer social programs,” said Donald Alexander, a former commissioner of the Internal Revenue Service, in recent testimony on tax simplification. Such pleas tend to fall on deaf ears in a Congress committed to fixing some problem by altering the tax code.
Besides, everyone is far more obsessed with the outcome of winners and losers in particular bills and focused on the horse-trading necessitated by our legislative process.
In this instance, energy-tax provisions will be the primary leverage when the two bill alternatives enter conference committee in coming weeks. Because the Senate passed its version of FSC/ETI first, the Senate Finance Committee is expected to manage the conference process.
Finance Committee chair Senator Chuck Grassley (R-Iowa) has promised a bipartisan effort, but he has already expressed concerns about state sales-tax deductions and the lessening of federal regulations related to tobacco farmer buyouts that are featured in the House version. Grassley, however, also wants to maintain ethanol subsidies for his corn-growing constituency.
House leadership, however – in the person of Tom Delay (R-Texas) – does not want the energy-tax provisions stripped from the comprehensive energy bill, which also was resurrected last week by the House. Some are predicting that the entire energy policy bill may get attached to the FSC/ETI repeal measure that emerges from committee. Oh, what a fine mess that would be.
The bottom line: Energy-efficiency tax breaks likely will be preserved in the resulting FSC/ETI bill, but so will many of the things that the Senate is unhappy with. Although Congress has a way of welding the good to the bad (however you might define them) the entire package could die of its own weight.
That would leave everyone frustrated, fail to address the international trade crisis, and defer the conflict over energy-tax provisions to another day.
Edward A. Reid, Jr.
7.8.04
For an analysis of this issue, see: "Site-Energy Measurement Metrics: Simple, Straightforward ...and Wrong", Public Utility Reports, September 15, 2003
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